Introduction
In the sales tax law, under which entry particular goods fall is always a debatable issue. There is lot of litigation in such matters. Numbers of judgments have been delivered. However, till today there is no finality about the issue.
To avoid such issues of interpretation, legislature sometime prescribe the entry in a more precise manner. For example, under Bombay Sales Tax Act (BST Act), there was an entry “C-I-29”, which reads as under:
“29. Industrial inputs and packing material, as may be specified by the State Government, from time to time, by notification in the Official Gazette.”
The notification issued prescribed various items of goods. The head note of the said notification dated 9.5.2002 was as under:
“No.STA .11.02/CR-99/Taxation-1 dt. 9.5.2002 – In exercise of the powers conferred by entry 29 in Part 1 of Schedule ‘C’ appended to the Bombay Sales Tax Act,1959 (Bom.LI of 1959), the Government of Maharashtra hereby, with effect from10th May,2002, and in suppression of the Government Notification, Finance Department, No.STA .11.01/CR-52/Taxation-1, dated the 14th May, 2001, specifies the following goods, more particularly described in the Schedule appended hereto to be Industrial Inputs and Packing Materials, whether sold under a generic name or and brand name, for the purpose of the said entry 29, namely:-“
Thus, it was made clear that only those goods which are specified in the Notification shall be considered for the purposes of Entry C-1-29. In spite of such a clear mandate that the notified good are “to be” the industrial inputs and packing material, still in one of the cases, Tribunal applied the common parlance meaning at its own imagination and in fact disallowed legitimate claim of the dealer. The reference is to the judgment of Hon. Tribunal in case of Samruddhi Industries Ltd. (Appeal No. 54 of 2004 dt. 28-02-2005).
Issue before Hon. Bombay High Court
Due to the above incorrect decision, the matter was referred to the Hon. Bombay High Court. The Hon. Bombay High Court has dealt with the issue in case of Samruddhi Industries Ltd. (Sales Tax Reference No.20 of 2006 dt. 23-12-2014). The issue was about classification of Ghamelas and other plastic items. They were covered by Central Excise Tariff heading 39.23. This was one of the notified heading in above notification.
However, the claim about coverage in entry C-I-29 was disallowed adopting ground of common parlance meaning.
The Hon. High Court disapproved such approach of the Hon. Tribunal. The Hon. High Court reproduced the observations of the Hon. Supreme Court about guidelines in deciding the classification as under:
“9. At the outset, we must refer to certain principles and which have been laid down by the Hon’ble Supreme Court. They guide us in interpreting the entries and the Notifications of this nature. In a recent case reported in AIR 2012 SC 1681, the Commissioner of Central Excise vs. M/s. Wockhardt Life Science Ltd., the Supreme Court reviewed and summarised these principles in the following words:
“30. There is no fixed test for classification of a taxable commodity. This is probably the reason why the `common parlance test’ or the `commercial usage test’ are the most common [see A. Nagaraju Bros. vs. State of A.P., 1994 Supp 20 (3) SCC 122]. Whether a particular article will fall within a particular Tariff heading or not has to be decided on the basis of the tangible material or evidence to determine how such an article is understood in `common parlance’ or in `commercial world’ or in `trade circle’ or in its popular sense meaning. It is they who are concerned with it and it is the sense in which they understand it that constitutes the definitive index of the legislative intention, when the statute was enacted [see D.C.M. vs. State of Rajasthan, (1980) 4 SCC 71 : (AIR1980 SC 1552)]. One of the essential factors for determining whether a product falls within Chapter 30 or not is whether the product is understood as a pharmaceutical product in common parlance [see CCE vs. Shree Baidyanath Ayurved, (2009) 12 SCC 419 : (AIR 2009 SC (Supp) 1090 : 2009 AIR SCW 3788); Commissioner of Central Excise, Delhi vs. Ishaan Research Lab (P) Ltd. (2008) 13 SCC 349]. Further, the quantity of medicament used in a particular product will also not be a relevant factor for, normally, the extent of use of medicinal ingredients is very low because a larger use may be harmful for the human body. [Puma Ayurvedic Herbal (P) Ltd. vs. CEE, Nagpur (2006) 3 SCC 266 : (AIR 2006 SC 1561 : 2006 AIR SCW 1384); State of Goa vs. Colfax Laboratories (2004) 9 SCC 83 : (AIR 2004 SC 45 : 2003 AIR SCW 5578); B.P.L Pharmaceuticals vs. CCE, 1995 Supp (3) SCC1 : (1995 AIR SCW 2509)].
31. However, there cannot be a static parameter for the correct classification of a commodity. This Court in the case of Indian Aluminium Cables Ltd. vs. Union of India, (1985) 3 SCC 284: (AIR 1985 SC 1201), has culled out this principle in the following words:
“13. To sum up the true position, the process of manufacture of a product and the end use to which it is put, cannot necessarily be determinative of the classification of that product under a fiscal schedule like the Central Excise Tariff. What is more important is whether the broad description of the article fits in with the expression used in the Tariff…”
32. Moreover, the functional utility and predominant or primary usage of the commodity which is being classified must be taken into account, apart from the understanding in common parlance [see O.K. Play (India) Ltd. vs. CCE, (2005) 2 SCC 460 : (AIR 2005 SC 1023 : 2005 AIR SCW 865); Alpine Industries vs. CEE, New Delhi (1995) Supp. (3) SCC 1; Sujanil Chemo Industries vs. CEE & Customs (2005) 4 SCC 189 : (2005 AIR SCW 5348); ICPA Health Products (P) Ltd vs. CEE (2004) 4 SCC 481; Puma Ayurvedic Herbal (AIR 2006 SC 1561 : 2006 AIR SCW 1384) (supra); Ishaan Research Lab (P) Ltd.(AIR 2008 SC (Supp) 540 : 2008 AIR SCW 6235) (supra); CCE vs. Uni Products India Ltd., (2009) 9 SCC 295 : (AIR 2009 SC (supp) 2403 : 2009 AIR SCW 6392)].
33. A commodity cannot be classified in a residuary entry, in the presence of a specific entry, even if such specific entry requires the product to be understood in the technical sense [see Akbar Badrudin vs. Collector of Customs, (1990) 2 SCC 203 : (AIR 1990 SC 1579); Commissioner of Customs vs. G.C. Jain, (2011) 12 SCC 713 : (AIR 2011 SC 2262)]. A residuary entry can be taken refuge of only in the absence of a specific entry; that is to say, the latter will always prevail over the former [see CCE vs. Jayant Oil Mills, (1989) 3 SCC 343 : (AIR 1989 SC 1316); HPL Chemicals vs. CCE, (2006) 5 SCC 208 : (2006 AIR SCW 2259); Western India Plywoods vs. Collector of Customs, (2005) 12 SCC 731 : (AIR 2005 SC 4405 : 2005 AIR SCW 5249); CCE vs. Carrier Aircon, (2006) 5 SCC 596 : (2006 AIR SCW 3910)]. In CCE vs. Carrier Aircon, (2006) 5 SCC 596 : (2006 AIR SCW 3910), this Court held:
“14… There are a number of factors which have to be taken into consideration for determining the classification of a product. For the purposes of classification, the relevant factors inter alia are statutory fiscal entry, the basic character, function and use of the goods. When a commodity falls within a tariff entry by virtue of the purpose for which it is put to (sic. produced), the end use to which the product is put to, cannot determine the classification of that product.”
In light of above, the Hon. Bombay High Court observed that the judgment given by the Hon. Tribunal is not correct. The Hon. High Court felt that the Hon. Tribunal should have applied the clear language to decide the issue and accordingly the matter would not have lingered for such a long time. The particular observations of the Hon. Bombay High Court are as under:
“12. A bare reading thereof, therefore would denote as to how the Industrial inputs and packing materials have been described. They have been brought in the single Notification and with this broad and wide description only on the footing that these are not ordinary plastic materials and utilised for household or domestic purpose. Once they are articles for conveyance or packing of goods, of plastics, stoppers lids, caps and other closures, of plastics and specifically excluding the bags of the type which are used for packing of goods at the time of a sale for the convenience of the customer including carrying bags then, there was no occasion for the Tribunal to ignore its plain wording. The description itself is such that the Revenue was aware that the Notifications have been issued and with Reference to the headings or sub-headings under the Central Excise Tariff Act, 1985. That the Industry requires not just traditional packing materials but of plastics and use of plastic is now extensive that the Notifications came to be issued and worded accordingly. There was never any doubt that these are materials of plastics but for conveyance or packing of goods. That goods are packed in plastic packing material for conveying and during industrial or commercial use is thus apparent. There was no occasion for the Tribunal, therefore to have brushed aside this wide wording and proceeded to hold at the initial stage that each of these are industrial inputs and packing materials. Assuming that foundation to be correct, yet, the Revenue relied upon that the description of the goods and the nature of the advertisement for sale of the goods establishes that all articles and manufactured by the Applicant are household. They are rarely used in the industries. It is unfortunate that at the appellate stage the Tribunal merely endorses such findings of the Commissioner. The Commissioner evolved, and with greatest respect, his own theory. He proceeded to analyse the Notifications and Entries. From his order, it is clear that he was aware of the legal principles. Interpretation of an entry is a question of law and whether particular goods and of a specific dealer would fall within the same or not are matters on which the Department or Revenue may take a view. However, the Tribunal endorsed this opinion of the Commissioner and the argument of the Revenue based thereon, namely, the description of the goods in the advertisement establishes that they are household articles. We are not impressed and in the least by such an approach of the Tribunal. The Court of Appeal has before it, original order and which is completely open for scrutiny. It is on fact and on law. The Tribunal ought not to have been carried away by only the case put up by the Revenue. The Tribunal is comprising of judicial members is expected to analyse the matter in its entirety. They are expected to apply their independent mind and not endorse the opinion of the Commissioner or the authorities under the Bombay Sales Tax Act or statutes analogous thereto. Therefore, to hold that the articles such as Ghamelas might be used in construction, agriculture etc. but they are not industrial inputs or packing materials would exhibit complete ignorance of the commercial word as well. It is for that reason that we emphasised the principles evolved by the Hon’ble Supreme Court. If they would guide us and they were equally binding and ought to have guided the Tribunal when it exercise its initial Appellate jurisdiction. In such circumstances, the plain reading of the entry and as made by the Tribunal in the initial stage while deciding the Appeal to be found in paras 10 to 12 of its order would demonstrate that it is this exercise which thereafter put the Tribunal itself in doubt. It is that doubt which required it to refer the questions to this Court. None would now therefore fault the Tribunal for reading the entry industrial inputs and packing materials properly. The fact that the Industrial inputs and packing materials have been notified throughout under the Notifications and in terms of the heading or sub-headings of these articles and materials under the Central Exercise Tariff Act, 1985 would show that household wares or domestic articles were not intended and rather never intended to be brought in. The exclusionary part of the entry itself will clarify this aspect. The articles of plastics and notified for use of conveying or carrying articles packed in plastic materials would denote that the understanding throughout was to bring in such articles which are used in trade, commerce and Industry. Therefore, on a plain reading of the entry itself the Tribunal should have in the initial stage decided the matter. That it ignored it and then referred the question for this Court’s opinion is clear from the above.
This resulted in an unavoidable delay. Matters of this nature ought to be finalised expeditiously and in the interest of certainty for both the dealer and the Revenue.”
Conclusion
Thus, the Hon. High Court expects that the Tribunal to work independently in the interest of both. Hon. High court has reversed the judgment of Hon. Tribunal and allowed the claim of classification under entry C-I-29 in favour of assessee.
